City contracts rarely go to small businesses or companies owned by women or minorities

The economic development office has a division dedicated to closing the gap, but it’s not like flipping a switch.

The Denver Art Museum's north building is under construction, Dec. 5, 2018. (Kevin J. Beaty/Denverite)

The Denver Art Museum's north building is under construction, Dec. 5, 2018. (Kevin J. Beaty/Denverite)

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Between 2012 and 2016, the City and County of Denver awarded $3.5 billion worth of contracts for work it can’t handle in-house. A sliver — 15 percent — went to companies that were small, owned by women, or owned by minorities.

Those findings come from a disparity study performed by BBC Research and Consulting for the Denver Office of Economic Development. BBC presented its findings during a City Council committee meeting last week — a day after the Hancock administration accused mega-corporation Trammel Crow of trying to eliminate a bidder from the $223 million Colorado Convention Center expansion.

“Given the unfortunate news that we heard yesterday about one of our big projects downtown… A lot of these projects you give to these smaller folks, give them the opportunity to do it, you make their company for the next 50 years,” said City Councilman Paul López. “You really do… if we wanted to help close that gap, we can.”

The economic development office has a division dedicated to closing the gap, but it’s not like flipping a switch. Big companies have the bandwidth to handle jobs that many small companies cannot. Plus there are not as many local firms that are small, woman-owned or minority-owned. That group, at least in the metro area, has the capacity to cover just 24 percent of the city’s contracts, according to the study.

The city has been changing the status quo by instituting goals, but is looking into dicing up large contracts, enforcing on-time payments better, and creating a loan fund to help close gaps.

A Denver law empowers the city to proactively award more contracts to minorities and women. But there remains a significant disparity between the amount of money Denver makes available for those contractors and the amount received by them, the study found. Those firms fall well below the 80th percentile of BBC’s “disparity index,” which is the threshold used to determine whether the companies are being “substantially” shunned.

In other words, given the amount of businesses out there, more underdog companies would have been awarded contracts, all things are equal. The results suggest the city should intervene further.

“Right now is the time to strike,” said Eric Harega, executive director of OED. “The timing is right to take action and improve the policies, procedures, strengthen the ordinance and really make meaningful change.”

Mayor Michael Hancock included a loan program in his 2019 budget to help qualifying companies build capacity. The city could “unbundle” large contracts to diffuse the work among more firms as well, officials said. Enhancing enforcement of on-time payments would help, too.

“The way to kill a small business is to not pay them in a timely manner,” City Councilman Wayne New said.

Contracts get awarded to underdogs when OED sets goals, according to the research. For example, businesses with black ownership surpassed the 80th percentile on the disparity index — after hovering around 36 — after the economic development office instituted benchmarks to reach

“Outcomes are better when there are subcontracting goals,” said Kevin Williams, managing director of BBC, “which is indicative of a program that can be successful in terms of providing more opportunities for women and minority owned firms. The other telling result is that when those goals go away, there are substantial disparities for all groups.”

There’s a “natural tension” between creating opportunity for underdogs and awarding contracts that make sense for taxpayers.

Denver must use public dollars responsibly for city projects, according to the city charter. That can make it hard for smaller companies who cannot bid as low as large competitors.

“That’s always the first challenge,” said Richard Moore with the city attorney’s office. “But it does create a natural tension when you’re trying to create opportunity for smaller firms.”

The new market is a work in progress, Williams said.

“We’re trying to grow and develop economically as a city to the point where we have a ton of competitors down the road to provide value for those larger contracts,” Williams said. “But you gotta address those barriers — access to capital, bonding, insurance.”

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